Professional Documents
Culture Documents
(BUS700)
TRIMESTER
2,
2015
BUS700
MICROECONOMICS,
TUTORIAL
SEMINAR
2
1.
2.
Briefly
explain
the
concept
of
own
price
elasticity
of
demand,
naming
the
various
types
of
elasticity
that
can
be
encountered.
A
price
elasticity
of
demand
of
4
means
that
a
10%
increase
in
price
will
result
in
a:
a)
b)
c)
d)
3.
The
price
of
plums
falls
by
7%
and
the
quantity
of
plums
demanded
increases
by
6.75%.
We
conclude
that
the
demand
for
plums
is:
a)
b)
c)
d)
4.
5.
Inelastic
Elastic
Perfectly
elastic
Perfectly
inelastic
If
an
airline
were
to
increase
domestic
fares
for
business
and
holiday
travellers
by
the
same
percentage,
why
might
revenue
from
sale
of
business
tickets
increase
whilst
revenue
from
sale
holiday
tickets
fall?
Use
the
demand
curve
for
business
and
holiday
tickets
to
illustrate
your
answer.
Calculate
the
cross-price
elasticity
for
the
following
goods.
Are
they
substitutes
or
complements?
a.
The
price
of
movie
theatre
tickets
goes
up
by
10
percent,
causing
the
quantity
demanded
for
video
rentals
to
up
by
4
percent.
b.
Computer
price
fall
by
20
percent,
causing
the
quantity
demanded
of
software
to
increase
by
15
percent.
c.
The
price
of
apples
falls
by
5
percent,
causing
the
quantity
demanded
of
pears
to
fall
by
5
percent.
6. In
response
to
the
increasing
death
of
teenagers
from
illicit
drug
overdose,
the
government
has
introduced
a
new
get
tough
on
drugs
policy
in
which
it
will
target
the
importers
and
dealers
of
illicit
drugs.
There
are
two
types
of
illicit
drugs
drug
A
and
drug
B.
Drug
A
has
an
elastic
demand
in
the
relevant
range.
Drug
B
has
an
inelastic
demand
in
the
relevant
range.
Analyse
the
effect
of
the
new
drug
policy
in
the
market
for
both
drugs.
What
would
be
the
effect
on
total
expenditure
on
each
of
the
drugs?
Are
your
answers
consistent
with
economic
theory?
Use
demand
and
supply
diagram
(s)
to
explain
and
illustrate
your
answer.
BUS700
Economics
Page 1
Economics
(BUS700)
7.
Define
the
following
concepts
in
relation
to
economic
efficiency:
price
ceiling,
price
floor,
and
deadweight
loss.
Use
the
demand
and
supply
model
to
illustrate
your
answer.
8.
Define the term incidence of tax. What does the incidence of tax depend on?
9.
Consider
a
market
in
which
demand
for
and
supply
of
the
good
conform
to
the
laws
of
demand
and
supply.
The
government
imposes
a
tax
t
on
the
good
to
be
paid
for
by
the
suppliers
of
the
good.
Use
the
demand
and
supply
diagram
to
analyse
the
effect
of
this
tax
on
the
market.
Your
answer
should
include
a
discussion
of
the
effect
of
on
quantity
sold,
price
in
the
market
and
the
incidence
(who
bears
the
tax
burden)
of
the
tax.
What
determines
the
incidence
of
the
tax?
Is
the
tax
efficient?
BUS700 Economics
Page 2